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How do I increase profits for my restaurant/catering business during a down economy?

By: Ed Fox

How do I increase profits for my restaurant/catering business during a down economy?

Answer:

Increasing profits in a recession: We have provided marketing considerations and resources below; however, increasing profits can also involve menu pricing, cost controls, staffing levels, and other measures. We assume that the tight market and local competition will not allow you to raise your product prices; however, meals, combos, family deals, and other menu variations can be an effective means of raising profit margins. Also, you may be able to reengineer your product to lower food costs. Many food businesses have periodically reduced their product size/portions or changed food recipes by using lower cost ingredients to lower food costs without having to lower prices or affect consumer demand. You would have to analyze your food products and costs in order to determine if reengineering any of your food products would be an opportunity to lower your food costs and increase your profit margins.

As to other cost reductions, every business should prepare an annual budget or otherwise review their food costs and other operating costs in order to identify what unnecessary expenses, what supplier price reductions, and what other cost saving measures may be available to help improve the business profit margins. Also, you can review articles and suggestions for surviving a recession at websites like the following:

Marketing plan: Economic recessions take their toll on many restaurants and other types of businesses. Whether changes in your marketing plans can help improve your business during the current economic recession is something you will have to analyze and evaluate. If catering, for example, is a larger sales opportunity than consumer sales, then you may need to focus more on business-to-business marketing than marketing to consumers. However, price promotions, menu mix, effective on-site signage, and other marketing methods can be effective for carry-out restaurants to attract retail consumer traffic. Business websites and other Internet marketing are common tools for restaurants; however, they typically do not drive significant customer traffic, particularly in the short term.

Companies with an operating and marketing history should periodically review their marketing programs and results, their target audience, and status of their competition to determine what has worked successfully in the past and what has changed in their business, industry, and market demographics. The place to start assessing your marketing plans is to review how you have marketed in the past and what has worked successfully. Perhaps you may only need to increase the frequency or level of your marketing, advertising, and sales activities to generate more sales. However, you may also need to consider different marketing methods to reach more target customers in your current trade area or to expand your geographic trade area.

Our answer assumes that you have considered and addressed any food quality, staffing, or operational issues in your restaurant and catering activities. However, we are providing a comprehensive list of marketing methods used by caters and restaurants for your consideration, though you may already have determined that some of the methods are not effective for your particular location and business. The following are marketing methods and considerations for your restaurant:

Target audience: Marketing programs and efforts deliver the best results and return on investment when focused towards your target customers – business, events, private parties, etc. Clearly defining your target market, based on your customer demographics will allow you to determine your sales potential and most effectively allocate your marketing dollars.

Most restaurants draw from the local trade area (1 to 5 miles, for example), which makes direct mail, store exterior signage and customer referrals effective marketing tools. However, some ethnic, upscale, and other restaurants with unique menus and/or atmosphere can draw from 20 miles or more. The size of the trade area influences the type of advertising and the distribution.

Customer base: You should make effective use of your catering client list to reach out to your current customer base for more repeat business.

Referrals: Customer referrals are one of the best forms of advertising and an excellent way to build a small business. Satisfied customers and business contacts are very likely to tell others about the great products and services they are receiving. You should actively solicit referrals from your customers and consider implementing an incentive program (i.e., free or discounted products, services or gifts).

Professional networking: Networking with event planners, facilities and meeting/party venues that do not have kitchens: churches, schools, party store operators, and other venue managers and professionals can be effective to gain catering jobs and referrals.

Direct or B2B sales: If you have significant competition, you may not be able wait for customers to call but should aggressively seek out businesses and other catering customers. B2B sales activities can be performed by small business owners or in-house sales staff. Also, using a telemarketing firm can be an option. Letters of introduction, brochures, resumes, and other methods are used to make initial contacts with commercial accounts; however, B2B sales generally require some level of direct sales activities to introduce business products and services and develop business relationships. For example, businesses often have established catering relationships; therefore, it can be important to meet with your target business clients face-to-face in order to have an opportunity to explain all of the benefits and advantages of your products and services and try to establish a business relationship. You can locate additional suggestions and tools for developing your B2B sales methods in bookstore, library publications and websites like the following:

Commercial lists: Letters of Introduction, brochures, promotional coupons, flyers, and other advertising (print and media) can be used to reach target customers. In addition to direct mail services like Valpak, various list services are available to select specific target groups by gender, location, income, and other criteria. A specific service is available through our website in the Sales section under Tools & Resources then Select Services. Also, you can use an Internet search engine to locate commercial lists. The following are examples:

Dun and Bradstreet is another source of list services:

D&B Business Information: dnb.com

NAICS/SIC codes:

Competitive review: Review how other caterers in your area market their services.

Free publicity: Restaurateurs should seek out free press and advertising regarding themselves and the restaurant (menu, theme, etc) or a grand re-opening event. Publicity is one of the best ways to reach the market, and it is inexpensive. There are often opportunities for free publicity or public relations in local markets by providing public interest stories to local newspapers, TV and radio stations that lead back to your product or service. Being a long-term business owner in the area, providing a niche or unique service, being recognized as business of the month and other factors can qualify you for free publicity in your market. Companies should certainly take advantage of press releases and other media public relations that they can obtain for free, by bartering or on an economical basis. One specific suggestion would be to find publications and groups in your area that present food awards. Determine what is involved to be in the running and go after the award. To have a group of people vote that your restaurant is the best in a category is very valuable and inexpensive—if not free. This type of endorsement can be terrific. You can use it in your advertising and it will be listed by the publication(s) that gave the award. You can review examples of publicity information and suggestions at the following websites:

Small Business Publicity Marketing: morebusiness.com

Six Steps to Free Publicity: obs-us.com

Industry information: You can locate restaurant marketing suggestions, tools, and industry information with an Internet search. The following are a few example websites:

On-site signage: A good location is often the most important factor for a restaurant’s success. A basic marketing tool is effective on-site signs, banners, and/or window treatments to attract passing consumers’ attention. Also, you can market your catering services with exterior signage and in-store marketing materials.

Flyers: Businesses often allow local restaurants to leave flyers and promotional coupons for distribution to employees.

Pickup ordering: Phone ordering is often an effective service for urban locations.

Online marketing: Business websites are common today to market business products and services. You can make effective use of a business website with search engines, banners, keywords, blogs, or other website marketing tools. Also, social media websites and blogs are very popular at the moment and some may be able to reach target customers (individuals or businesses) and create interest in certain business products or services. These methods are newer, there is considerable competition, and business networking and marketing results will vary by situation based on various factors. We do not have any quantitative results on the business marketing success rates of the many networking websites. Basically, you would have to research and then test this type of advertising in order to determine if it reaches your target audience or otherwise can be effective for your business. Business and social networking sites generally have explanatory information for business advertisers on their websites. You can research the top business and social networking websites through websites like the following:

Facebook Fan pages:

Groups:

Restaurant blogs:

Gift certificates: Selling gift certificates can generate new trial customers.

Frequency cards: Customer loyalty is always important and many restaurants use a form of frequency card that rewards customers after X number visits or a dollar amount purchased.

Print ads in Local Yellow Pages, newspapers and food/dining publications: Local hotels generally have local food and entertainment brochures in the rooms and/or in the lobby for travelers. Many also have a special advertising channel on their TVs for local businesses and attractions.

Menu mix: New menu items and menu variety can help reach a larger target audience and increase frequency among current restaurant customers.

Marketing Plan: Marketing methods are influenced by the industry, local competition, target customers, available capital, customer base, and other factors. Also, trial and experimentation is usually required to determine the most effective promotional methods for a particular market. Businesses normally determine by experience which marketing options provide the greatest response with the lowest cost. Business owners test, adjust and measure their marketing efforts to make sure they are allocating their marketing dollars cost-effectively in reaching their potential customers. You typically need to apply this type of approach to any business.

A marketing budget will be a balance between what print, direct mail, media, and other forms of advertising cost in your market and what you can afford. Also, marketing dollars are most cost effective when they reach certain target audiences, rather than a general distribution. There is no silver bullet in marketing. Whether an Internet website, print, referrals, or other form of advertising, a business must break through the clutter of many other advertisers to attract the customers’ attention.

It is often advisable for business owners to have a written business plan that includes a marketing plan. A marketing plan can help you evaluate marketing options, formulate a plan (monthly, seasonal, etc), and develop a budget.

Published: August 29, 2013
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Ed Fox

Ed Fox is the Director of Technology for Tarkenton. To assure users of a rich online experience (whether they are customers, employees, partners, or suppliers for a business), Ed combines knowledge of coding language, development and design, content management, and other critical tools. He also focuses on creating an effective website through search engine optimization and a deep and thorough understanding of web analytics. Connect with him on LinkedIn .